Finally, the foreclosure crisis has ended

Reviewing recently published data from virtually everyone who tracks foreclosure activity leads to the inevitable conclusion that we are finally at the end of what has probably been the longest and most severe foreclosure cycle in the history of the U.S. housing market.

Attom Data Solutions announced that foreclosure activity this past February dropped to an 11-year low, marking the 17th consecutive month of year-over-year decreases. Attom’s data covers three distinct phases of foreclosure activity — the initial notice of default (or lis pendens filings in judicial states), the notice of sale and any
subsequent bank-repossession action. Attom’s data also shows that foreclosure starts as of this past February
were down 13 percent from the prior year — the 20th consecutive month with year-over-year declines.

The Mortgage Bankers Association
(MBA), in its most recent National Delinquency Survey, reported
that the percentage of loans in the
foreclosure process at the end of
fourth-quarter 2016 was 1.53 percent — the lowest level since the
second quarter of 2007. And states
like California and Florida, which
arguably had some of the worst
foreclosure problems in the country, have seen the percentage of
troubled loans drop dramatically.

MBA data includes loans earlier in
the default cycle than Attom, but
does not include loans that have
gone through the process and resulted in real estate owned by a
lender. It’s telling, however, that
both sets of data are trending in
exactly the same direction.

Black Knight is reporting similar trends even earlier in the process with loans that are delinquent, but not yet in
foreclosure. In its January 2017 Mortgage Monitor, the company noted that delinquency rates have fallen from a
cyclical peak of over 8. 5 percent in 2011 to a rate slightly above the historical average of 4 percent, and this rate
continues to move lower. So there’s no sign of a new pipeline of foreclosure activity on the horizon.

That’s an important point, because there have been ongoing rumors about impending waves of foreclosures
because of “shadow inventory” — Home Affordable Modification Program (HAMP) loan resets or even home equity
lines of credit (HELOCs) defaults as they mature. Fortunately, none of these appear to be real problems.

The inventory of loans in foreclosure is the lowest it has been since before the housing crisis started. In addition,
there is no indication that the default rates of either HAMP loans or HELOCs is going to be significant.

In fact, the Black Knight report notes that there are roughly 2 million reperforming loans — loans which at one
point had been over 120 days delinquent, or in foreclosure, but have now been current for at least four consecutive months. Nearly 60 percent of these have been reperforming for over 24 months. Almost 90 percent of these
loans were issued prior to 2009, after which lending standards tightened significantly, and include loans that had
been modified through the HAMP program and through proprietary programs.

While there are some states where lengthy foreclosure processes have created backlogs that will likely take another
year or two to work through — New York, New Jersey and Illinois, for example — we appear to be heading back to
normal levels of distressed loans by the end of 2017. Roughly 1 percent of loans are in foreclosure and 4 percent in
delinquency.

In fact, lending standards have been so tight over the past few years that many economists and analysts who
cover this space believe we might actually see delinquency and default rates move below historically normal
levels by 2018. Although another foreclosure cycle is inevitable, it seems that we can safely — finally — say
that we’re at the end of this historically volatile cycle that started in late 2006, and there’s nothing to suggest that
we’re about to see the next wave of foreclosures anytime soon. n

DataDecoded

Rick Sharga

Rick Sharga is executive vice
president of Ten-X. He is one of the
country’s most frequently quoted
sources on real estate, mortgage
and foreclosure trends. Sharga has
appeared on top television shows and
briefed government organizations and
corporations on foreclosure trends.

He also conducts foreclosure training
for leading real estate organizations.

Before Ten-X, Sharga was an executive
vice president and primary spokesman
for Carrington Mortgage Holdings.